Most start-ups look to angel investors and venture capitalists to provide funding for the takeoff of their businesses. It is not an easy process. You need to create a solid business plan to show viability of the project, pitch the plan to the VCs/angel investors, then run the business all the way to the proposed exit plan (divestment, IPO, etc). The development of cryptocurrencies in the last 8 years has altered this landscape radically. It is now possible to use cryptocurrency units (known as tokens) to raise funds using a crowdfunding technique. Further enhancements provide incentives for the community of funders to invest in the project, which increases the demand for the blockchain-based product and hence the value of the tokens. This is the basis of operation of the Initial Coin Offerings (ICOs).
Blockchain projects have raised a total of $1.67 billion with initial coin offerings (ICOs) so far according to data from the CoinDesk ICO Tracker.
What are ICOs?
An ICO stands for Initial Coin Offering. Just the way shares connote company ownership and constitute the unit of equity held by a shareholder, the ICO presents the “token” as the unit of ownership of the blockchain-based product it is promoting. Just like in traditional IPOs, the funds raised from the sale of the tokens are used to finance the development of the product being promoted by the company operating the ICO.
Prior to launch, the company intending to raise funds from the ICO will prepare a “white paper” (more like a prospectus in an IPO) to provide more insight into the product being developed, how it will be promoted and grown, and any benefits that will accrue to initial investors as the product is developed. Most ICOs are based on the Ethereum blockchain technology; this allows investors to use Ether to exchange for the ICO tokens.
There is a time period within which the ICO is left open to enable investors purchase the tokens. To provide incentives to early investors, bonuses are awarded. These may come in the form of an added percentage of tokens to the investor’s initial acquisition.
With an ICO event, a new cryptocurrency project sells part of its cryptocurrency tokens to early adopters and enthusiasts in exchange for immediate, liquid currency today. The investment is typically in Bitcoin and or Ethereum
What is the Profit Potential in an ICO?
The potential for profit in an ICO follows the same pattern that stocks of newly listed companies follow on the way to becoming more valuable than investors initially paid for them in an IPO.
Most investors use the buy and hold approach when purchasing ICOs. Therefore, an ICO’s profit potential lies in the ability of the company or fund’s ICO product to command great public interest, to the extent that there is a large demand for the product, which subsequently impacts revenues enough to boost the share price (in this case, the price of the token).
There are various examples of ICOs that were launched between 2016 & 2017 that are already delivering returns on investment for the early bird token investors. Here are a few:
- Stratis - Launched: Jul 2016, ICO Price: $0.007, Token Return: 547.40x (As at October 2017)
- Spectrecoin - Launched: Jan 2017, ICO Price: $0.001, Token return: 368.29x (As at October 2017)
- Ark - Launched: Dec 2016, ICO Price: $0.010, Token Return: 268.04x (As at October 2017)
- Antshares/NEO - Launched: Sep 2016, ICO Price: $0.188, Token Return: 157.24x (As at October 2017)
With life changing gains such as these, you can see how possible, and frankly "relatively easy" it is to build up a Million dollar nest egg. This is why we are seeing lots of hedge funds and "everyday investors" all competing for a piece of the action.
There is no investment which is 100% guaranteed. No one can predict the success of an ICO with absolute certainty, neither can any investor gaze into a crystal ball to predict returns on any ICO. Past success is not an indication of future performance.
Profiting With ICOs
There is no investment which is 100% guaranteed. No one can predict the success of an ICO with absolute certainty, neither can any investor gaze into a crystal ball to predict returns on any ICO. There are many more scams than genuine ICOs out there, so you have to be very careful in selecting which one to invest in. In an unregulated market, there is always the danger of being sold on a scam. So how can you actually make money with ICOs?
- Invest in Genuine ICOs that solve a real world problem
The lack of regulation of the ICO industry makes it very difficult to weed out the bad guys. There are some things that you can do to ensure you are investing your hard earned money in a genuine product/platform. Check their website (If they dont have a professional looking site, id most likely stay away), read the whitepaper (authoritative report giving information or proposals on an issue) every ICO has one. Be able to answer the following questions:
- What does the company do?
- Do they have an existing product? (Its a plus if they do)
- Is there a need, and demand for decentralized service? (Its all about demand. No demand, worthless)
- Can the company generate more tokens after the ICO whenever it wants? Inflation can dilute the value of your token very fast.
- what the token will be used for?
- How are their promotions? If they keep talking about general informations like how large the industry is instead of describing in detail what the project does, i’d most likely avoid them!
How to profit from ICOs: 1. Invest only in Genuine ICOs that solve a real world problem
- Invest in ICOs with Solid Fundamentals
If the ICO represents a business concept which is fundamentally sound, has a pragmatic approach and vision for success in the blockchain industry, and is backed up by a team that has a track record of making things happen, you are more likely to make money with such an ICO. Vitalik Buterin was part of several cryptocurrency projects such as DarkWallet and KryptoKit before he went on to co-found Ethereum. Given his previous experience, as well as his status as a recipient of the Thiel Fellowship, it is not a surprise that Ethereum has attained its present heights from its ICO in 2014.
How to profit from ICOs: 2. Invest in ICOs with solid fundamentals
- Monitor Your Token Value and Know When to Sell or Buy More
After purchasing your ICO tokens, you can do several things with them. You can adopt the buy and hold strategy, waiting for the tokens to become more valuable, or you can offload them into the market in exchange for fiat currencies.
Tokens are listed quite quickly; usually from a week to a month after the ICO ends. These tokens are listed on cryptocurrency exchanges where they can be traded with the general public, in the same manner that shares of a stock from an IPO get listed on exchanges for secondary trading.
ICO tokens are usually Bitcoin or Ethereum based. The prices of these two cryptocurrencies tend to fluctuate. Therefore, you need access to charts that will tell you when prices are high or when they will retrace. This will guide you on when to sell at a premium, or when to purchase more tokens if prices have retreated.
How to profit from ICOs: 3. Monitor Your Token Value and Know When to Sell or Buy More
- Invest in ICOs with a Hardcap and Low Total Supply
Placing a cap on how much can be invested and raised in an ICO, as well has having a lower total supply (Millions not Billions) will create a scarcity of tokens. If the project becomes successful, there will be greater demand for the tokens which with reduced supply, will raise the prices of the tokens. If you invested in the ICO, you can flip your tokens for profit at this time. So you must find out if the ICO has a hard cap or an unlimited cap.
How to profit from ICOs: 4. Invest in ICOs with a Hardcap and Low Total Supply
If you are participating in an ICO fist check if you can export the private key from your wallet and then send funds to the token sale. This ensures that you will always be able to retrieve any tokens from the sale.
After the sale ends look for a cold storage solution for your token.
The specific dynamics of an ICO may vary, however all the details will be made available through their official site, and or white-paper.
Disclaimer: This is not financial advise, & i am not a financial advise. This is for education purpose only.
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